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The drought in small-business lending appears to be easing.

It's not yet a funding flood, but by the end of last year banks were making it easier and cheaper for small businesses to get financing, according to a Bank of Canada survey of senior loan officers at major financial institutions released on Monday.

At the same time, the central bank's Business Outlook Survey, also released Monday, found companies in the fourth quarter were slightly less bullish about sales prospects for the coming year, but confident enough in the recovery that they plan to ramp up hiring and investment.

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Both surveys appear to point to economic improvements that could erase the last vestiges of the downturn.

Looser financing terms for small business loans in the fourth quarter followed several months of improvement in credit access, mainly for larger firms. The central bank's survey found that "heightened competition among lenders" and a "more favourable" economic outlook helped fuel easier-to-get loans for companies.

That extended to smaller firms, which often have a harder time accessing credit at the best of times. Lending to small businesses plunged during the economic downturn, forcing them to slash operations, hoard cash or find other sources of financing.

Overall, the central bank's survey found that the so-called balance of opinion measuring the difference between those who saw conditions tightening and those who saw them easing (with anything less than zero showing easier lending) was negative 36.4 percentage points in the period. That reading was the lowest since central bank records began in 1999, although the survey doesn't show how much conditions have actually eased.

"It does seem like things are getting back to normal in a meaningful way," said Doug Porter, deputy chief economist at BMO Nesbitt Burns in Toronto. "We saw quite a marked loosening of credit standards, especially on the pricing side, which suggests the credit crisis is truly over."

Still, the Canadian Federation of Independent Business says its own studies indicate the jury is out on whether credit access for smaller companies has really turned a corner.

Ted Mallett, the group's chief economist, said in an interview that CFIB members weren't reporting much improvement in the lending climate until a December survey, when 72 per cent of 400 or so businesses polled said they have all or most of the financing they need.

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"That's the only month we've seen with such a healthy number, so whether that's sustained or not, we don't know," Mr. Mallett said. "From our standpoint it's too early to say that the financing concerns have gone away."

In the central bank's business outlook survey, it found executives continue to "position themselves for growth" by adding workers and investing in the type of machinery and equipment that policy makers say will be crucial to being able to keep up with competitors in emerging markets and prepare for an aging work force.

"Efforts to improve competitiveness by raising productivity or by expanding into new areas, or intentions to expand output in line with strengthening demand, feature prominently among the factors driving firms' investment intentions," the central bank said. "While pursuing strategies to position themselves for growth, many firms continue to indicate that their expectations for sales growth are modest, citing such factors as strong domestic and foreign competition and moderate demand."

The surveys come as Bank of Canada Governor Mark Carney, who paused his rate-hiking campaign in October after three consecutive increases that brought the benchmark rate to 1 per cent, gets ready for his next decision on Jan. 18 and puts the finishing touches on a quarterly economic forecast he'll release the following day.

Mr. Carney is expected to keep rates steady until at least March or April, and possibly through midyear.

In her first speech since becoming one of five deputies on Mr. Carney's rate-setting panel, Agathe Côté said Monday that low borrowing costs "create their own risks," and repeated the central bank's warnings that Canadian households' finances are "increasingly stretched."

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"Without a significant change in behaviour," she told an audience in Kingston, Ont., "the proportion of households that would be susceptible to serious financial stress from negative income or wealth shocks will continue to grow."




Percentage of Canadian executives who said they plan to increase employment in the next 12 months, up from 39 per cent in previous survey.


Percentage of executives who said they expect a drop in employment, down from 14 per cent.


Percentage of executives who expect sales to accelerate over the next 12 months, down from a 55 per cent reading in the previous survey.


Percentage of executives who expect sales growth to slow, up from 26 per cent.


Percentage of companies that plan to increase machinery and equipment investment over the next 12 months.


Percentage of companies that plan to decrease machinery and equipment investment.

Source: Bank of Canada's Business Outlook survey

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